LECTURE 2 : DEVELOPING A BUSINESS CONCEPT

AND BUSINESS MODEL 11/09/2013

Dr. Terrence R.M.Lalla
LEARNING OUTCOMES
1. Explain what a business concept is
2. Position the concept in the value(supply)
chain
3. Develop an effective distribution strategy
4. Build a business model for a new
concept.
Why a Business Concept and
Business Model Matters
A substantial amount of Business
Planning is required
Develop a business concept that
meets a real market need;
Develop a business model that
captures value for customer and
the business
Developing a Business Concept
(BC)
Concise description of an opportunity
(Concept Statement) that contains 4
elements :
1. Customer definition;
2. Value proposition (benefit to customer);
3. The product/service
4. Distribution channel (Supply Chain)
Customer Definition
Who is your customer (the one who
pays?)
Where do you lie on your supply chain
Value Proposition
1. Why should anyone be interested in this
concept?
2. What is the pain that is being eased?
3. What problem does this concept solve?
The Product/Service
Provide revenue streams for competitive
advantage
Definition and design stem from
Customers needs
Core competencies
Part of concept statement





The Distribution Channel
Delivers the benefit to the customer
How to get to the customer?
Where and how the product should be
sold?
Direct or through channel intermediaries

Developing the BC Statement
The BC Statement is a compelling story that
consists of a problem and a solution
containing the 4 elements
Quick Test:
1. Am I passionate about it?
2. Are others interested?
3. Will you pay for it?
4. Why me?
5. Why now?
The Value Chain and the BC
Value Chain (VC) consists of 2 Parts that can
make or break the BC
1. Upstream activities ( inbound logistics, operations,
outbound logistics)
2. Downstream activities (marketing and sales,
service)
3 Forces affecting VC
1. Internet
2. Reduced transactions cost
3. Disintermediation

Value Chain: Porters model,
1985
Firm Infrastructure
Human resources management
Technology development
Procurement
Inbound
logistics
Operations
Outbound
logistics
Marketing
and sales
Service
Source: Porter, ME. (1985) Competitive Advantage, The Free Press
Customer
demands
Narrow focus of
traditional logistics
Manufacturing
From VC to Supply Chain (SC)
Source: Gattorna, J. (2006) Living Supply Chains, FT Prentice Hall
Firm Infrastructure
Human resources management
Technology development
Procurement
Inbound
logistics
Operations
Outbound
logistics
Marketing
and sales
Service
M
a
r
g
i
n
Firm Infrastructure
Human resources management
Technology development
Procurement
Inbound
logistics
Operations
Outbound
logistics
Marketing
and sales
Service
M
a
r
g
i
n
Firm Infrastructure
Human resources management
Technology development
Procurement
Inbound
logistics
Operations
Outbound
logistics
Marketing
and sales
Service
M
a
r
g
i
n
Suppliers
Retailers/
distributors
Inbound
logistics
Outbound
logistics
Internal
operations
Internal
interfaces External
interfaces
Broad focus of integrated supply chain
Transportation and Logistics in
supply chains
Diagram source: New and Payne, 1995.
Components of an Effective
SC
1. Inventory
2. Ownership
3. Financing and Payment
4. Risk management
5. Member power
SC Strategy or design
The location and capacities of production
and warehousing facilities;
Products to be manufactured or stored at
various locations;
Modes of transportation to be made
available along different shipping legs;
Type of information system to be utilized.
SC Planning
Define a set of operating policies that govern
short term operations;
Forecast for the coming year;
Decisions regarding market segment(s) to be
supplied from which location;
The planned buildup of inventories;
Subcontracting of inventories;
Backup locations for stockouts;
Timing of marketing promotions.


SC Operation
Weekly or daily time horizon;
Decisions regarding individual customer orders;
Implement effecting and efficient operating policies;
Allocate individual orders to inventory or production;
Set date for order fulfillment;
Generate pick lists at a warehouse;
Allocate an order to a particular shipping mode and
shipment;
Set delivery schedules of trucks;
Place replenishment orders.
The Business Model (BM)
Involves the CREATION and CAPTURE of VALUE
by:
Differentiating from competitors;
Meeting an unserved need in the market;
Making money.
Thru a community of PARTNERS;SUPPLIERS,
CUSTOMERS and MEMBERS of the VC.
NOTE:
BM change over time as customer change
Building a BM
Requires continual innovation and new ways to satisfy the
Customer
Important QUESTIONS (Q) to be answered and STAGES
(S) to be followed:
Q1 What are the cash cows?
Q2 What are the cost drivers?
Q3 When and How much capital is needed?
Q4 What are the critical success factors?
S1 What position in the SC?
S2 Calculate how to create value to the Customer
S3 Identify revenue streams and cost drivers
S4 Test for weaknesses
S5 Develop Competitive Strategy

Sources of Opportunity
1. Reposition on the value chain;
2. Reinvent the SC;
3. Redefine value added;
4. Determine when the BM must change
Tutorial 2 : Business concept; Business
model
1. With the use of examples state the
reasons why a business concept and
business model are essential to the
success of a business idea.
2. Using examples explain what different
forces affect the workings of the value
chain.
3. With respect to the above, discuss how
the characteristics of an effective supply
chain can be used to overcome
challenges.

Tutorial Question
How do companies add value, and what are
the dimensions of performance that
customers are expecting of companies?
Answer
Companies add value through R&D, design
of products, services, or processes,
production, marketing, distribution, and
customer service
Customers want companies to deliver
performance through cost and efficiency,
quality, timeliness, and innovation.
Assignment (5%of the 20%) Team Project
Date given : 12/09/2011
Date due : 26/09/2011
With respect to your business idea :
1. Develop the business concept
2. Position the concept in the value(supply)
chain
3. Develop an effective distribution strategy
4. Build a business model